ex10_2.htm


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    Exhibit 10.2

    EMPLOYMENT
AGREEMENT

     

    AGREEMENT
dated as of December 16, 2009 between VINCENT PALAZZOLO, residing at 1595 James
Road, Wantagh, New York 11793 (“Executive”), and CPI AEROSTRUCTURES, INC., a New
York corporation having its principal office at 60 Heartland Blvd., Edgewood,
New York 11717 (“Company”);

     

    WHEREAS,
Executive has served as the Company’s Chief Financial Officer pursuant to an
Amended and Restated Employment Agreement, dated December 1, 2006 which expires
by its terms on December 31, 2009; and

     

    WHEREAS,
the Company desires to continue the employment of Executive as its Chief
Financial Officer, effective January 1, 2010, and Executive desires to continue
his present employment with the Company, pursuant to the terms and conditions
herein set forth.

     

     

    IT IS
AGREED:

     

     

    1. Employment, Duties and
Acceptance.

     

     

    1.1 General.  The
Company hereby agrees to the continued employment of Executive as its Chief
Financial Officer (“CFO”), effective January 1, 2010.  All of
Executive’s powers and authority in any capacity shall at all times be subject
to the direction and control of the Company’s Board of Directors.  The
Board may assign to Executive such management and supervisory responsibilities
and executive duties for the Company or any subsidiary of the Company, including
serving as an executive officer and/or director of any subsidiary, as are
consistent with Executive’s status as CFO.  The Company and Executive
acknowledge that Executive’s primary functions and duties as CFO shall be to
manage and supervise the Company’s financial operations.

     

     

    1.2 Full-Time
Position.  Executive accepts such employment and agrees to
devote substantially all of his business time, energies and attention to the
performance of his duties hereunder.  Nothing herein shall be
construed as preventing Executive from making and supervising personal
investments, provided they will not interfere with the performance of
Executive’s duties hereunder or violate the provisions of Section 5.4
hereof.

    
      
         

      

      
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    1.3 Location.  The
Company will maintain its principal executive offices within a thirty (30) mile
radius of its current location in Edgewood, New York.  Executive shall
undertake such occasional travel, within or outside the United States, as is
reasonably necessary in the interests of the Company.

     

     

    2. Term.  The
term of Executive’s employment hereunder shall commence on January 1, 2010 and
shall continue until December 31, 2012 (“Term”) unless terminated earlier as
hereinafter provided in this Agreement, or unless extended by mutual written
agreement of the Company and Executive.  Unless the Company and
Executive have otherwise agreed in writing, if Executive continues to work for
the Company after the expiration of the Term, his employment thereafter shall be
under the same terms and conditions provided for in this Agreement, except that
his employment will be on an “at will” basis and the provisions of Sections 4.4
and 4.6(c) shall no longer be in effect.

     

     

    3. Compensation and
Benefits.

     

     

    3.1 Salary.  The
Company shall pay to Executive a salary (“Base Salary”) at the annual rate of
(i) $225,000 from January 1, 2010 until December 31, 2010, (ii) $234,000 from
January 1, 2011 until December 31, 2011 and (iii) $243,300 from January 1, 2012
to December 31, 2012.  Executive’s compensation shall be paid in
equal, periodic installments in accordance with the Company’s normal payroll
procedures.

     

     

    3.2 Bonus.  In
addition to Base Salary, for each of the years ending December 31, 2010,
2011 and 2012, Executive shall be paid a bonus (“Bonus”) to be calculated in the
manner set forth on Schedule A annexed
hereto.  The amount of the Bonus shall be pro-rated to the date of
termination of Executive’s employment.  The cash portion of the Bonus
shall be paid, and the stock portion of the Bonus shall be issued, on March
10th (or
the first business day thereafter if such date is not a business day) of the
following year.

    
      
         

      

      
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    3.3 Benefits.  Executive
shall be entitled to such medical, life, disability and other benefits as are
generally afforded to other executives of the Company, subject to applicable
waiting periods and other conditions.

     

     

    3.4 Vacation.  Executive
shall be entitled to such paid vacation days in each year during the Term and to
a reasonable number of other days off for religious and personal reasons in
accordance with customary Company policy.

     

     

    3.5 Automobile.  During
the Term, the Company shall provide a luxury class automobile (reasonably
satisfactory to Executive) for Executive to be used in connection with the
business of the Company.  The Company shall reimburse Executive for
all costs associated with the use of such automobile, including lease and
insurance costs, repairs and maintenance.

     

     

    3.6 Expenses.  The
Company shall pay or reimburse Executive for all transportation, hotel and other
expenses reasonably incurred by Executive on business trips and for all other
ordinary and reasonable out-of-pocket expenses actually incurred by him in the
conduct of the business of the Company against itemized vouchers submitted with
respect to any such expenses and approved in accordance with customary
procedures.

     

     

    3.7 Club
Membership.  During the Term, Executive shall be entitled to a
country club membership, as long as the Company maintains a group membership at
such club.

     

     

    4. Termination.

     

     

    4.1 Death.  If
Executive dies during the Term, Executive’s employment hereunder shall terminate
and the Company shall pay to Executive’s estate the amount set forth in Section
4.6(a).

     

     

    4.2 Disability.  The
Company, by written notice to Executive, may terminate Executive’s employment
hereunder if Executive shall fail because of illness or incapacity to render
services of the character contemplated by this Agreement for six (6) consecutive
months.  Upon such termination, the Company shall pay to Executive the
amount set forth in Section 4.6(a).

    
      
         

      

      
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    4.3 By Company for
“Cause”.  The Company, by written notice to Executive, may
terminate Executive’s employment hereunder for “Cause”.  As used
herein, “Cause” shall mean: (a) the refusal or failure by Executive to carry out
specific directions of the Board which are of a material nature and consistent
with his status as CFO (or whichever positions Executive holds at such time), or
the refusal or failure by Executive to perform a material part of Executive’s
duties hereunder; (b) the commission by Executive of a material breach of any of
the provisions of this Agreement; (c) fraud or dishonest action by Executive in
his relations with the Company or any of its subsidiaries or affiliates
(“dishonest” for these purposes shall mean Executive’s knowingly or recklessly
making of a material misstatement or omission for his personal benefit); or (d)
the conviction of Executive of a felony under federal or state
law.  Notwithstanding the foregoing, no “Cause” for termination shall
be deemed to exist with respect to Executive’s acts described in clauses (a) or
(b) above, unless the Company shall have given written notice to Executive
within a period not to exceed ten (10) calendar days of the initial existence of
the occurrence, specifying the “Cause” with reasonable particularity and, within
thirty (30) calendar days after such notice, Executive shall not have cured or
eliminated the problem or thing giving rise to such “Cause;” provided, however,
no more than two cure periods need be provided during any twelve-month
period.  Upon such termination, the Company shall pay to Executive the
amount set forth in Section 4.6(b).

     

     

    4.4 By Executive for “Good
Reason”.  The Executive, by written notice to the Company, may
terminate Executive’s employment hereunder if a “Good Reason”
exists.  For purposes of this Agreement, “Good Reason” shall mean the
occurrence of any of the following circumstances without the Executive’s prior
written consent:  (a) a substantial and material adverse change in the
nature of Executive’s title, duties or responsibilities with the Company that
represents a demotion from his title, duties or responsibilities as in effect
immediately prior to such change (such change, a “Demotion”); provided, however, that in
the event of a “Change in Control” (as defined below), no Demotion shall be
deemed to have occurred as long as Executive shall remain as the Company’s head
financial officer, notwithstanding title; (b) material breach of this Agreement
by the Company; (c) a failure by the Company to make any payment to Executive
when due, unless the payment is not material and is being contested by the
Company, in good faith; or (d) a liquidation, bankruptcy or receivership of the
Company.  Notwithstanding the foregoing, no “Good Reason” shall be
deemed to exist with respect to the Company’s acts described in clauses (a), (b)
or (c) above, unless Executive shall have given written notice to the Company
within a period not to exceed ten (10) calendar days of the initial existence of
the occurrence, specifying the “Good Reason” with reasonable particularity and,
within thirty calendar days after such notice, the Company shall not have cured
or eliminated the problem or thing giving rise to such “Good Reason”; provided,
however, that no more than two cure periods shall be provided during any
twelve-month period of a breach of clauses (a), (b) or (c)
above.  Upon such termination, the Company shall pay to Executive the
amount set forth in Section 4.6(c).  “Change in Control” shall mean
the acquisition, by any person or entity other than the Company and/or any
officers or directors of the Company as of the date of this Agreement, of
securities of the Company (in one or more transactions) having 50% or more of
the total voting power of all the Company’s securities than
outstanding.

    
      
         

      

      
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    4.5 By Company Without
“Cause”.  The Company may terminate Executive’s employment
hereunder without “Cause” by giving at least thirty (30) days written notice to
Executive. Upon such termination, the Company shall pay to Executive the amount
set forth in Section 4.6(c); provided, however, that if
such notice is given more than 18 months after a Change in Control, the Company
shall pay to Executive only the amount set forth in Section 4.6(b).

     

     

    4.6 Compensation Upon
Termination.  In the event that Executive’s employment
hereunder is terminated, the Company shall pay to Executive the following
compensation:

     

     

    (a) Payment Upon Death or
Disability.  In the event that Executive’s employment is
terminated pursuant to Sections 4.1 or 4.2, the Company shall no longer be under
any obligation to Executive or his legal representatives pursuant to this
Agreement except for: (i) the Base Salary due Executive pursuant to Section 3.1
hereof through the date of termination; (ii) any Bonus which would have become
payable under Section 3.2 for the year in which the employment was terminated
prorated by multiplying the full amount of the Bonus by a fraction, the
numerator of which is the number of “full calendar months” worked by Executive
during the year of termination and the denominator of which is 12 (a “full
calendar month” is a month in which the Executive worked at least two weeks);
(iii) all earned and previously approved but unpaid Bonuses for any year prior
to the year of termination; (iv) all valid expense reimbursements, and (v) all
accrued but unused vacation pay.

     

     

    (b) Payment Upon Termination by
the Company For “Cause”.  In the event that the Company
terminates Executive’s employment hereunder pursuant to Section 4.3, the Company
shall have no further obligations to the Executive hereunder, except for: (i)
the Base Salary due Executive pursuant to Section 3.1 hereof through the date of
termination (ii) all valid expense reimbursements and (ii) all unused vacation
pay through the date of termination required by law to be paid.

     

     

    (c) Payment Upon Termination by
Company Without Cause or by Executive for Good Reason.  In the
event that Executive’s employment is terminated pursuant to Sections 4.4 or 4.5,
the Company shall have no further obligations to Executive hereunder except for:
(i) the Base Salary due Executive pursuant to Section 3.1 hereof through the end
of the Term, payable in accordance with Section 3.1; (ii) all earned and
previously approved but unpaid Bonuses; (iii) all valid expense reimbursements;
and (iv) all accrued but unused vacation pay.

    
      
         

      

      
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    (d) Executive
shall have no duty to mitigate awards paid or payable to him pursuant to this
Agreement, and any compensation paid or payable to Executive from sources other
than the Company will not offset or terminate the Company’s obligation to pay to
Executive the full amounts pursuant to this Agreement.

     

     

    5. Protection of Confidential
Information; Non-Competition.

     

     

    5.1 Acknowledgment.  Executive
acknowledges that:

     

     

    (a) As a
result of his current and prior employment with the Company, Executive has
obtained and will obtain secret and confidential information concerning the
business of the Company and its subsidiaries (referred to collectively in this
Section 5 as the “Company”), including, without limitation, financial
information, proprietary rights, trade secrets and “know-how,” customers and
sources (“Confidential Information”).

     

     

    (b) The
Company will suffer substantial damage which will be difficult to compute if,
during the period of his employment with the Company or thereafter, Executive
should enter a business competitive with the Company or divulge Confidential
Information.

     

     

    (c) The
provisions of this Agreement are reasonable and necessary for the protection of
the business of the Company.

     

     

    5.2 Confidentiality.  Executive
agrees that he will not at any time, during the Term or thereafter, divulge to
any person or entity any Confidential Information obtained or learned by him as
a result of his employment with the Company, except (i) in the course of
performing his duties hereunder, (ii) with the Company’s prior written consent;
(iii) to the extent that any such information is in the public domain other than
as a result of Executive’s breach of any of his obligations hereunder; or (iv)
where required to be disclosed by court order, subpoena or other government
process.  If Executive shall be required to make disclosure pursuant
to the provisions of clause (iv) of the preceding sentence, Executive promptly,
but in no event more than 48 hours after learning of such subpoena, court order,
or other government process, shall notify, confirmed by mail, the Company and,
at the Company’s expense, Executive shall:  (a) take all reasonably
necessary and lawful steps required by the Company to defend against the
enforcement of such subpoena, court order or other government process, and (b)
permit the Company to intervene and participate with counsel of its choice in
any proceeding relating to the enforcement thereof.

    
      
         

      

      
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    5.3 Documents.  Upon
termination of his employment with the Company, Executive will promptly deliver
to the Company all memoranda, notes, records, reports, manuals, drawings,
blueprints and other documents (and all copies thereof) relating to the business
of the Company and all property associated therewith, which he may then possess
or have under his control; provided, however, that Executive shall be entitled
to retain copies of such documents reasonably necessary to document his
financial relationship with the Company.

     

     

    5.4 Non-competition.  During
the Term and for a period of two (2) years thereafter, Executive, without the
prior written permission of the Company, shall not, anywhere in the world, (i)
be employed by, or render any services to, any person, firm or corporation
engaged in the contract production of aircraft parts or any other business which
is directly in competition with any “material” business conducted by the Company
or any of its subsidiaries at the time of termination (as used herein “material”
means a business which generated at least 10% of the Company’s consolidated
revenues for the last full fiscal year for which audited financial statements
are available) (“Competitive Business”); (ii) engage in any Competitive Business
for his or its own account; (iii) be associated with or interested in any
Competitive Business as an individual, partner, shareholder, creditor, director,
officer, principal, agent, employee, trustee, consultant, advisor or in any
other relationship or capacity; (iv) employ or retain, or have or cause any
other person or entity to employ or retain, any person who was employed or
retained by the Company while Executive was employed by the Company (other than
Executive’s personal secretary and assistant); or (v) solicit, interfere with,
or endeavor to entice away from the Company, for the benefit of a Competitive
Business, any of its customers or other persons with whom the Company has a
contractual relationship.  Notwithstanding the foregoing, nothing in
this Agreement shall preclude Executive from investing his personal assets in
any manner he chooses, provided, however, that Executive may not, during the
period referred to in this Section 5.4, own more than 4.9% of the equity
securities of any Competitive Business.

     

     

    5.5 Injunctive
Relief.  If Executive commits a breach, or threatens to commit
a breach, of any of the provisions of Sections 5.2 or 5.4, the Company shall
have the right and remedy to seek to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction, it being
acknowledged and agreed by Executive that the services being rendered hereunder
to the Company are of a special, unique and extraordinary character and that any
such breach or threatened breach will cause irreparable injury to the Company
and that money damages will not provide an adequate remedy to the
Company.  The rights and remedies enumerated in this Section 5.5 shall
be in addition to, and not in lieu of, any other rights and remedies available
to the Company under law or equity.  In connection with any legal
action or proceeding arising out of or relating to this Agreement, the
prevailing party in such action or proceeding shall be entitled to be reimbursed
by the other party for the reasonable attorneys’ fees and costs incurred by the
prevailing party.

     

     

    5.6 Modification.  If
any provision of Sections 5.2 or 5.4 is held to be unenforceable because of the
scope, duration or area of its applicability, the tribunal making such
determination shall have the power to modify such scope, duration, or area, or
all of them, and such provision or provisions shall then be applicable in such
modified form.

     

     

    5.7 Survival.  The
provisions of this Section 5 shall survive the termination of this Agreement for
any reason, except in the event Executive is terminated by the Company without
“Cause,” or if Executive terminates this Agreement with “Good Reason,” in either
of which events, clauses (i), (ii) and (iii) of Section 5.4 shall be null and
void and of no further force or effect.  The non-renewal of this
Agreement at the end of the Term shall not be a termination by the Company
without “Cause”.

    
      
         

      

      
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    6. Miscellaneous
Provisions.

     

     

    6.1 Notices.  All
notices provided for in this Agreement shall be in writing, and shall be deemed
to have been duly given when (i) delivered personally to the party to receive
the same, or (ii) when mailed first class postage prepaid, by certified mail,
return receipt requested, addressed to the party to receive the same at his or
its address set forth below, or such other address as the party to receive the
same shall have specified by written notice given in the manner provided for in
this Section 6.1.  All notices shall be deemed to have been given as
of the date of personal delivery or mailing thereof.

     

    


    If to Executive:

    


    Vincent Palazzolo

    1595 James Road

    Wantagh, New York 11793

    


    If to the Company:

    


               CPI
Aerostructures, Inc.

    60 Heartland Blvd.

    Edgewood, New
York  11717

    Attn:  Edward J.
Fred

    


    With a copy in either case
to:

    


    Graubard Miller

    The Chrysler Building

    405 Lexington Avenue

    New York, New
York  10174

    Attn:  David Alan Miller,
Esq.

    


     

    6.2 Entire Agreement;
Waiver.  This Agreement and the Stock Option Agreement executed
simultaneously herewith set forth the entire agreement of the parties relating
to the employment of Executive and is intended to supersede all prior
negotiations, understandings and agreements.  No provisions of this
Agreement or the Stock Option Agreement may be waived or changed except by a
writing by the party against whom such waiver or change is sought to be
enforced.  The failure of any party to require performance of any
provision hereof or thereof shall in no manner affect the right at a later time
to enforce such provision.

     

     

    6.3 Governing
Law.  All questions with respect to the construction of this
Agreement, and the rights and obligations of the parties hereunder, shall be
determined in accordance with the law of the State of New York applicable to
agreements made and to be performed entirely in New York.

     

     

    6.4 Binding Effect;
Nonassignability.  This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of the Company.  This
Agreement shall not be assignable by Executive, but shall inure to the benefit
of and be binding upon Executive’s heirs and legal representatives.

     

     

    6.5 Severability.  Should
any provision of this Agreement become legally unenforceable, no other provision
of this Agreement shall be affected, and this Agreement shall continue as if the
Agreement had been executed absent the unenforceable provision.

     

     

    6.6 Section
409A.  This Agreement is intended to comply with the provisions
of Section 409A of the Internal Revenue Code (“Section 409A”).  To the
extent that any payments and/or benefits provided hereunder are not considered
compliant with Section 409A, the parties agree that the Company shall take all
actions necessary to make such payments and/or benefits become
compliant.

    
      
         

      

      
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    IN WITNESS WHEREOF, the parties have
executed this Agreement on the date first above written.

     

    


    


    CPI AEROSTRUCTURES, INC.

    


    


    /s/ Edward J.
Fred                                                      

    By:  Edward J.
Fred

                                                                                   
Chief
Executive Officer

    


    


    /s/ Vincent
Palazzolo                                                                

    VINCENT PALAZZOLO


    
      
        
           

          


           

        

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    SCHEDULE
A

    Bonus: Based on our common
understanding of the significance of your participation in the budgeting process
of the Company, your bonus shall be based on specific revenue and earnings
before interest, taxes, depreciation and amortization (“EBITDA”) goals, which
shall allow you to earn a target annual bonus equal to forty-five percent (45%)
of your annual base salary if a 10% annual increase is achieved.  The
Company’s auditors will determine EBITDA after taking into account all necessary
provisions and the accrual of all bonuses, including your own bonus, and
excluding all extraordinary items.  Twenty-five percent (25%) of the
bonus amount will be determined by revenues (the “revenue bonus”) and
seventy-five percent (75%) by EBITDA (the “EBITDA bonus”).

    


    EBITDA
Bonus

     

    1. At 100%
of EBITDA target (i.e., 10% growth), your EBITDA bonus will equal 100% of 75% of
45% of base salary.

     

     

    2. Should
EBITDA fall short or exceed EBITDA target, your EBITDA bonus will decrease or
increase based on the grid, below.  For example, if there is a 50%
increase in EBITDA, the EBITDA bonus would equal 150% of 75% of 45% of base
salary; and if there is a 10% decrease in EBITDA, the EBITDA bonus would equal
25% of 75% of 45% of base salary.

     

     

    3. If the
decrease in EBITDA is 15% or more, no EBITDA bonus will be paid.

     

     

    4. Notwithstanding
the foregoing, if EBITDA for the year preceding the year for which the EBITDA
bonus is to be determined is less than $1 million, then the EBITDA bonus will be
calculated by comparing the current year’s EBITDA to the EBITDA of the first
preceding year in which EBITDA was in excess of $2 million.

     

    Revenue
Bonus

     

    1. At 100%
of revenue target (i.e., 10% growth), your revenue bonus will equal 100% of 25%
of 45% of base salary.

     

     

    2. Should
revenue fall short or exceed revenue target, your revenue bonus will decrease or
increase based on the grid, below.  For example, if there is a 50%
increase in revenue, the revenue bonus would equal 150% of 25% of 45% of base
salary; and if there is a 10% decrease in revenue, the revenue bonus would equal
25% of 25% of 45% of base salary.

     

     

    3. If the
decrease in revenue is 15% or more, no revenue bonus will be paid.

     

    General

     

     

    1. Both
bonuses will be adjusted pro rata if EBITDA and/or revenues fall in between two
grid percentages.

     

     

    2. The first
$75,000 of bonus would be paid in cash.  The balance would be paid
half in cash and half in shares of the Company’s common stock, valued at the
VWAP for the five trading days ending two trading days before
issuance.  They will be issued under the Company’s Performance Equity
Plan 2009.

     

     

    3. The
Company and executive to mutually agree on how to handle all
acquisitions.

     

    Grid

     

    
      	
              Growth

            	
              Bonus

            
	
              Decrease
      greater than 15%

            	
              No
      bonus

            
	
              Decrease
      10%

            	
              75%
      Decrease

            
	
              Decrease
      5%

            	
              50%
      Decrease

            
	
              Flat

            	
              25%
      Decrease

            
	
              Increase
      5%

            	
              10%
      Decrease

            
	
              Increase
      10%

            	
              Baseline
      bonus

            
	
              Increase
      15%

            	
              5%
      Increase

            
	
              Increase
      25%

            	
              10%
      Increase

            
	
              Increase
      50%

            	
              50%
      Increase

            
	
              Increase
      100% or greater

            	
              75%
      Increase

            


    

    


    


    



    
      
        
          


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